Illinois to issue new Build Illinois bonds next week

The state of Illinois is preparing to issue $600 million in new Build Illinois junior sales tax revenue bonds — 2024 Series A, B and C — in a competitive auction next week. 

“Illinois enters the market as cash needs for projects arise,” said Olivia Kuncio, senior deputy press secretary to Gov. JB Pritzker.

Rebuild Illinois is a six-year, . PFM Financial Advisors LLC is municipal advisor on the deal. Katten Muchin Rosenman LLP and Sanchez Daniels & Hoffman LLP are co-bond counsel.

The governor’s office declined to detail which specific projects the bonds will fund, but Kuncio said they will support “Rebuild Illinois-related projects.” 

On Wednesday, Fitch Ratings assigned an A-plus rating to the new bonds and affirmed its rating of A-plus for the outstanding senior and junior Build Illinois bonds.

Kroll Bond Ratings Agency on Thursday affirmed its AA-plus rating on the state’s outstanding Build Illinois junior bonds, which are currently at $1.147 billion and with the new bonds will come to $1.75 billion total. The AA-plus rating applies to the new bonds. There are also $712.48 million of senior bonds outstanding.

S&P Global Ratings on Wednesday affirmed its A rating on existing Build Illinois senior- and junior-lien sales tax bonds and rated the new deal A.

All three agencies assign a stable outlook.

Moody’s Investors Service caps its Build Illinois sales tax revenue bond rating at the state’s issuer rating, now A3 after a March upgrade. It was not hired to rate the new deal, according to the investor presentation, which only lists the other three rating agencies.

In its rating report, KBRA noted that Illinois “rebounded strongly” from the COVID-19 pandemic and said it expects the state’s sales tax revenues, which support debt service on the bonds, to keep growing at a steady rate. 

“Declines through ordinary economic cycles have generally been small and followed quickly by recovery,” KBRA Senior Director Michael Taylor and Director Peter Scherer said by email. “Historic volatility is very low, particularly in the context of the 10.2x MADS additional bonds test, and declining debt service requirements. So, we are expecting continued modest growth.” 

But the report also flagged one concern: the possibility that Illinois might over-leverage debt levels in tandem with an economic downturn that depletes sales tax revenues. KBRA considers this “unlikely.”

“Given the ample coverage of both senior and junior debt service obligations, we expect that the state would be able to weather an economic downturn, as it has in recent events, without a material impact to coverage levels given the declining debt service schedule,” Taylor and Scherer said.

The KBRA rating reflects the legal framework of Build Illinois bonds, which includes a continuing appropriation requirement that has seen bondholders paid on time and in-full even when the state has failed to adopt a full budget. The state also waived its sovereign immunity for these bonds, allowing it to be sued in state or federal courts if it fails to comply with covenants that guarantee deposits of state sales tax revenues in the Build Illinois Fund or the Retirement and Interest Fund, and the ongoing payment of debt service.

The rating also reflects Illinois’ stable and diverse economic base and “extraordinary” maximum annual debt service coverage of outstanding senior and subordinate bonds (129.2x and 45.8x, respectively), KBRA said.

Kuncio said these bonds represent “a stellar credit” and Illinois’ sales tax revenues remain strong.

“The state concurs with KBRA’s assessment that [an economic downturn] is unlikely,” she said. “For good reasons, Build Illinois has been a strongly viewed credit since its first issuance in 1985.”